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Tuesday, May 1, 2012

SPX, COMPQ, Eur/USD Updates: Today Could be a Critical Day

Today could be a key day toward gaining more confidence in one of the two main counts, because -- as those of you who own digital watches already know -- today is the first of May. The first of any month is frequently bullish, since there's often a big bag of fund money moving into the market.

If the bulls are able to show some strength today, it's probably time to start betting on the alternate count. Conversely, if the bears can keep control, then the preferred count will gain a bit of a confidence boost. There are two main reasons I remain in favor of the more bearish count, and I'll outline my reasoning in a moment.

Yesterday's decline appeared impulsive, meaning it appeared to complete a five-wave move. So there might be a small bounce, but if that was wave a or 1 down, it should be followed by more selling. A material break of 1394 should get the ball rolling.

Conversely, if bulls can take the market back above the recent 1406.64 print high, then the alternate count is probably unfolding. I'm inclined to favor the alternate if new highs are made today, because that would then mean the market was up 6 out of the last 7 days, which is often (not always, of course) indicitive of a more meaningful bottom. So if new highs occur, the favored odds shift to the bulls -- but currently the odds still remain with the bears.

As such, on the chart below, the blue count is still the preferred count, and suggests that the entirety of the recent rally is part of a corrective structure, which will be followed by new lows.

The alternate count would view the recent lows as a base from which a larger five-wave rally will unfold. As I said, I think tomorrow will go a long way toward adding confidence toward one view or the other.

One of the reasons I remain in favor of the rally being corrective is the Nasquack, which looks to have formed a clear five-wave decline. That suggests that another five-wave decline will follow, though it does not preclude further sideways corrective action first.

The Nascrack also looks like a small impulse down, to be followed by new short-term lows after any bounce completes.

As a refresher, here's what the big picture looks like. There are already targets for each count, but no confirmation. As I've been stating, I continue to feel that the preferred count is slightly more probable.

Yesterday I mentioned that the Euro/US dollar currency pair is trading just beneath intermediate and long-term resistance levels. If it does break out here, then equities bears are probably going to need to come to terms with the alternate count. But again, odds here favor that it won't break out, since it's facing dual resistance -- and since it's formed a descending triangle, which leads to a bearish resolution 64% of the time.

A descending triangle indicates that sellers are coming back into -- and taking control of -- the market earlier and earlier, which is why the peaks become progressively lower. So sellers are getting stronger, while buying interest remains flat.

The Euro/Dollar chart is another reason I remain in favor of the more bearish equities count.

However, 64% odds are just that -- and there's no rule to guarantee that the 36% odds won't come to play on this particular occasion. In either case, today's action could go a long way toward telling us if the higher odds will take the intermediate-term prize, or if Uncle Ben's loaded dice will once again guarantee that bears lose to the house. Trade safe.

Morning PL and all ..... Got one quick minute before the Kid and I have to go to school and work.... Who is WWWCI? and Thanks for a well written article on the markets.....Gotta go now the Kid is helping me..... LOL

so... maybe something wrong with EWT you say, whew... that could get you hung, drawn and quartered on this site, & your head stuck on a pole on London Bridge.! shooosh... Kings have lost their heads over less... ;)

With that serious decline in the Aussie dollar, and the effect it had on the Aussie:Yen cross I just don't see how equities can hold up here. The reason I've used the Aussie:Yen cross exclusively as a measure of risk is because of the use of those two currencies in the currency carry trade circus. This drop in the Aussie is going to cause a lot of currency traders to find themselves seriously underwater and they're going to "have to" unwind some positions, both in currencies and in equities. Unless for some unknown reason the currency carry trade is no longer providing clues about what the big boys find to be risky, equities should respond to this deflationary event just like any other. Ahem... like the Euro crisis that apparently doesn't exist. Cynicism aside, the correlation between the Aussie:Yen cross and equities has been nothing short of stunning. I don't see why that should suddenly change today nor in the coming days and weeks.

Something is missing in the way of alt count at this point. Technically, I don't 'count' them myself, so I can't pinpoint the problem.But my work pretty clearly is looking for a third path, neither of which match your main options this morning.I have us in a weak bull cycle, with key support in the 1390 area (spy basis) and we may well sag down to there today, but recover smartly after that. Into the final high. Can't say if we best 1422 or not. But we should top this week. No chance for 1440. So I'm not immediately bearish, but this is hardly a bullish read either.

Well there goes the Russell. Up 1% in one minute. So when did Goldman get "that much" power that they can literally overpower the entire global currencies markets? Maybe they're the only player left? So it appears that after years and years of incredibly close correlation between the currency carry trade and equities, that relationship no longer exists. I've seen it all now.

It was the silly ISM number that came out very positive 54.8 when everyone was expecting 53 or so. Last month was 53.4. New orders looking good. Don't know how the government twists these numbers though.

On the other hand, isn't this an "intraday gap" and shouldn't this be traded like that? So now, the gap is "done" at ES 1400. So if it should go below this level at all, it should be sold. That would be the logical thing. -DD

Do I have this backwards? EUR/USD drop should be good for bears regarding equities, right? So it just dropped big and equities fly up. Maybe the wires in my brain are crossed this AM and I just have this backwards?

Nope, you have it correct. Currencies markets all over the world are screaming "risk off" and equities take off as if there was no such thing as a currency market at all. Today's market action in the face of what's happening in the currency markets just makes no sense at all. It is the greatest case of market manipulation I have ever seen. Nonetheless, the insanity of it could still ignite the bullish side of things... against all common sense and logic. I don't care that some of the market internals signals are cautioning that higher prices 'could' be coming. They are issuing those signals from levels that are not at all particularly low on a historic basis. So they're not making the 'strongest' case for higher prices. What's happening is the currencies markets trumps all... and the markets shrug it off. It's the closest thing to insanity I've ever seen.

went long when 1406.64 was broken. tight stops as usual. this is the kind of "confirmations" (if there are ever confirmation lol) i look for. Thanks to PL for pointing this out. should be relatively low risk IMHO

DJ and SP still bullish for me. Targets I am a little shy to post, guess none won't to hear them here.€/$ still bearish. But the last high was the extra, I did not need...Silver I am wait and see. Part still running.

Thanks Jumpin' Joe. I hadn't heard what it was nor did I care really. As if the ISM number is real or something. Goldman moulds the ISM number to "surprise to the upside" as if they're fooling anybody and then they inject an insane buy order that will swamp all the little sell orders that are 'above' the market generating this, the phoniest of rallies I have ever witnessed considering that it comes in the face of a currency "unwind" of the decade. lol

Where does it end? When do they start to hang for this type of manipulation? And I don't care about potential wave counts that could have portended higher prices. They didn't take into account a crash in the currency carry side of things. And I don't care about market internals that would support a bounce because neither did they know about this carry trade unwind. The markets should be headed sharply lower because of the currencies issue. It's so huge it trumps all. All but Goldman I guess.

LOL, yes it can go both ways, at least moves like these take some of the guessing out of it, which is always nice. Attached a quick bollinger band chart with "my" usual 0.5, 1, 2 stdev bands (from the 20d-SMA). As one can see SPX is now in between the 1 and 2 stdev upper band, which takes some serious strength to get there. Given I am a conservative investors when it comes to market related tickers (SPY, QQQ, DOG, SH, etc) I wait for such a confirmation (as well as levels pointed out by PL). The side ways slop of pretty much most of April is something I (try to ;-) ) stay out of.

The USD is rallying based on the ISM that implies US growth and therefore no further QE. The stock market is rallying based on the implied US growth. It's actually markets reacting to US economic outperformance in a rational way, even if I don't like it.

That damn expanded flat I posted in the comments yesterday looks like it was perfectly right. I left it as the alternate today, because it didn't seem to fit well w/ COMPQ and some others. Yesterday's chart:

By golly I think this might be what's going on. Either today's rocket finished of the 'c' wave, or it's just wave 1 of 5 higher. I think the entire up-move is too big to be a new wave 1 of 5. It that's what it is then we're probably looking at SPX 1500 almost. So I'm leaning toward it being nearing the completion of the 'c' wave. Right now it's length is 1.61 times what would be the 'a' wave.http://stockcharts.com/h-sc/ui?s=$SPX&p=30&yr=0&mn=1&dy=20&id=p40895741043&a=246027623&r=1335415782827&cmd=print

Hi PL...something that you wrote yesterday really stuck with me so much that I actually remembered it (the Alzheimer's hasn't got me yet)...it was your last sentence, "Assuming the SPX drops back below 1000 at some point in the future, what's the practical difference if the top was at 1422 or 1452?" Maybe I'm reading into it a bit much, but it demonstrated a sense of correct confidence that I imagine you experienced in 2008. Thanks again for all of the time and effort you put forth for our benefit.

What is the deal today? When EURO was tanking to 1.3210, stocks are blasting off. Something is very wrong about this picture. Either one of them is bluffing. Who is going to blink first? Maybe the Euro sellers know something we don't? or stocks are blasting off because of more QE talk from the FED?? Just thinking out loud

PL, what's the upper target on the flat? and what retracement would be in order? I'm a classic TA & trend follower by discipline but am absorbing EW as an attempt to 'complete' an objective view of the market.. Many thx & my personal condolences

You're welcome. To be brutally straightforward, though, my confidence right now is lower than it was in '08. This market has been distorted by an unprecedented level of intervention -- all the "64% chances" seem to turn into zero lately... so it's harder to predict.

I should also add that I'm now beginning to accumulate shorts in CVX again today -- so my money's going where my mouth is. Not gonna jump in all at once, though, because as I said, could be a little more upside. And if it turns into a five wave rally, then I'll take my lumps and jump out.

I should have said "... or it's just wave 1 of 3 of 5 higher". Normally I'd just edit the comment but it's the editing (if there's a link involved in the original comment) that invariably ejects a lot of my comments to the spam bin. Or somewhere.

I think this probably has more to do with the fund money flow I mentioned, and less to do w/ ISM -- other than short covering adding fuel to the fire. Perhaps the market forgot that good ISM = no QE3 = bad for the market.

Thanks PL. I highly value your opinion, and knowing that you're putting your money where your mouth is means that much more. I bought a put this past Friday and wish I had had the patience to wait a little while longer. Fortunately I only bought one.

thanks for the "not trading advice" I know you look really broad across a wide range of indices, commodities, and sometimes even celestial alignments :D, for those of us doing this PT on the side, is there a subset that helps reasonably to indicate divergences (COMP, INDU, TRAN, RUT, etc)

just saying... by definition this move certainly cannot be a regular flat... also by definition, the B wave didn't 'expand' such as in an expanded flat. Not sure that orthodox EW has a 'term' for this move (assuming it remains a correction) If I were basing my opinion solely on F&P, the implication would be that this move CAN'T be a correction.

Stopped out on the open this morning at $106.87. Placed a "hard stop" on the short from $103.67 before the open this morning...damn biz meeting. Two reasons.....May tends to be an up first day of trading (PL's comment about fund flow) and if $106.80 was going to be my wave v and 2 then anything above that is BAD.....likely to hit the $108-$109 range and then move sideways for a bit, then down is likely. Took a $430 hit on the April ops and $320 on the short.....$750 loss. Back to the drawing board.

Hi PL,I trade stocks for fun but own a small contract manufacturing company for a living. Small company, but, we go way back to 1962. Jimmy Carter era was very bad, but, this economy is worse by a great margin and we don't see it improving anywhere in the near future. The nature of the beast has permanently been changed with the introduction of 0.02 cents per hour workers in China. It's like we gave a dollar to China, we get in exchange for that dollar 20 cents worth of cheap merchandise, but, we lose 80 cents in local/national income. Go figure how this helps the world economy. Can go into a long dialogue, but would take too much space. I don't believe these ISM numbers. Just some food for thought.

Don't let it get you down though. That effect is showing up all over the place in TA I do and it's frustrating as hell. That's why I've often said that it's almost as though Goldman has purchased the rights to "logic" and has banned it's use. It's so distorted that it's almost unrecognizable in a lot of cases. It's like tipping over your coffee cup and the coffee lands on the ceiling.

All upper gaps filled on $RUT (less 0.2 pts...close enough) prior to decline...As a kind and compassionate bear, I will forgive the bulls for this oversight...Now may we please proceed to fill the gap down at 798. Thank you for your cooperation in advance.

I hear ya man. I'm really, really, really torn about this one. The currencies story is huge, so huge that I simply can't overlook it. On the other hand market internals technicals can support the bullish count but are putting in what 'might' be a bottom from a level that is far from historic lows. They could go a 'lot' lower. AND, they are set up so that they could turn on a dime. But it would necessitate lows that are lower than today's low to do it. And moving averages can be interpreted so many ways that they're almost of no value at the moment. Which ones to we put emphasis on? In my humble opinion it could go either way and I absolutely do not count out the very bullish case even though it might sicken me to see it happen... because of "why" I think it would happen.

Here is the chart. What's wrong with this count? I say that because I am always wrong. If we completed Minor 5 of Intermediate 1 at 1415 then Wave 5 cannot go higher because 3 would become the shortest (1359 to 1391), (1391 to 1385), (1385 to 1407), (1407 to 1394), and (1394 to 1415)

PL...when I posted this on Friday I did not expect CVX to reach this fourth wave of one lesser degree. But here it is at $108.78 and the peak of the fourth wave (one lesser degree) was $108.79. Good lesson in EW analysis and parameters, as well as money management.

again, a break of 06 and up very well may be over, maybe MMs are playing with us. i mentioned the possibility of a mini-flash crash this morning, getting a few more signs of that possibility. guess we will see

Bob filled the June 110 puts at 3.70 filled the June 105 at 1.50. Now we should see a repeat of the April pause for the left shoulder pattern. So should see an attempt to put in right shoulder and fail the neckline on a retrace and bounce. Of course we could retrace all the way up to the high of the 1/2 wave down just to piss all the bears off really good

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